Absence of essential benchmark information on governance hampers investment in water sector

The absence of essential information needed to benchmark Environmental, Social and Governance (ESG) criteria performance is a serious impediment to investment and policy decisions in the water and sanitation services sector.

This is an important conclusion from a recent survey by the Interfaith Center on Corporate Responsibility that examined the drinking water and sanitation services sector through the lens of Environmental, Social and Governance (ESG) criteria. The purpose of the report is to aid the growing number of responsible investors — institutions and individuals — concerned about the impacts and long-term sustainability of investments in this vital but controversial sector.

“The question for responsible investors is not one of ownership but of performance: how to identify water utilities that are financially sound and have demonstrated success in building natural, social and moral capital, whether they be government- or investor-owned,” the authors write.

To answer this question, a survey was undertaken of the information publicly reported via the Internet on the ESG performance of local water utilities. In most of the developing world and emerging market countries, water utilities report core indicators on the website of the International Benchmarking Network for Water and Sanitation Utilities (IBNET), which is maintained by the World Bank. However, very few public or private utilities in developed countries do so.

The Interfaith Center on Corporate Responsibility (ICCR) survey examined ESG disclosures for government-owned and operated water utilities in New South Wales, Australia, and New York City, and ten investor-owned utilities operating in the United Kingdom (U.K.), the United States (U.S.) and the Philippines. The web sites of the local water utilities, their holding companies or, in the case of New South Wales, their regulatory agency were reviewed, in addition to a variety of reports published on these sites.

The web-based disclosures were evaluated to determine the quality and availability of ESG performance data for local water and sanitation utilities reported by the investor-owned companies or their subsidiaries, and by the public entities. Twenty-one indicators related to the material ESG challenges discussed in this report were used to assess:
(1) management’s perception of and response to non-financial risks;
(2) evidence that effective management systems for data collection are used to monitor and benchmark local utility performance;
(3) whether the ESG performance data were consistent, comparable and comprehensive; and
(4) whether the information was clearly presented and easily accessible.

Wide disparities and significant information gaps

The survey found wide disparities and significant information gaps in the reporting, particularly for the local utilities owned by the largest water companies. The performance monitoring report issued by the regulatory authority in New South Wales, covering 111 water and sanitation utilities, was far and away the best in both content and presentation. New York City came closest to the “gold standard” set by New South Wales. With the exception of Manila Water and the two U.K. water services companies, none of the privately owned companies reported basic ESG performance data in a comprehensive, consistent, or comparable manner for their local water utilities. Very little performance information was disclosed for the investor-owned utilities operating in the U.S. apart from the water quality reports mandated by regulatory authorities; and, in some instances, even that information was lacking.

The failure to provide essential performance data on water utilities cannot be attributed to the lack of reporting or analytical tools. The New South Wales report shows that comprehensive data can be gathered, analyzed and reported for a large number of operating utilities.

Creation of a “data commons” essential

The challenges of preserving water resources from overuse and pollution, and of providing water for all can only be met if all stakeholders — that is to say, all members of society — are engaged in water governance. Creation of a “data commons” is essential for protection of the water commons. The Internet makes a data commons possible and the IBNET offers a comprehensive, Web-based reporting template that can be used by companies, consumers, regulators and investors. Responsible investors, and particularly institutional investors that are signatories of the Principles for Responsible Investment (PRI), have an obligation to use their considerable financial power to help build the data commons for water by requiring better ESG reporting from the water utilities they invest in so that capital may be rationally allocated to those enterprises — whether public or private – most capable of meeting the extraordinary water challenges. The Interfaith Center on Corporate Responsibility (ICCR), a US-based coalition of over 275 faith-based institutions, has been a leader of the corporate social responsibility (CSR) movement for over 35 years.

[1] Liquid Assets: Responsible Investment in Water Services ICCR The Corporate Examiner Special Edition 2009 The Corporate Examiner Vol. 36, No. 8-10, PDF, Interfaith Center on Corporate Responsibility,
accessed 1 Dec 2009

Dick de Jong